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September 09, 2011
Latest Kings arena plan includes every funding scheme but the kitchen sink
At last, it has arrived: Sacramento Mayor Kevin Johnson's Think Big arena task force yesterday issued its Nexus Report — nobody can say they're not thinking big in terms of ostentatious titles, anyway — on how to fund a $387 million Sacramento Kings arena. The result, though, is more sketchy framework than detailed plan, and mostly amounts to a laundry list of funding streams that it thinks would be politically feasible:
- There's no sales tax hike or other broad-based tax, presumably because those would require a public vote, and the last time the Kings tried that they failed miserably.
- The crux of the Nexus would be what proponents are calling a split of the arena funding into thirds: one-third from the public, one-third from private sources, and one-third from users of the arena.
- The public share would amount to $94-123 million, and could include the sale of public land, diversion of existing hotel taxes, and/or billboard revenues.
- The private portion would be $91-156 million, a good chunk of which would presumably come in the form of rent payments from the Kings: The Sacramento Bee reports that "task force officials have indicated they want the Kings to enter into a lease comparable to the deal the team struck in their aborted attempt to relocate to Anaheim," which included a rent equal to 7.5% of ticket revenue, which would come to somewhere around $2-3 million a year. Though the Kings owners would there have gotten a cut of arena ad revenue plus naming rights money, which would be problematic in Sacramento's case because...
- Naming rights would be part of the "user" slice of the pie ($90-112 million), which could also include parking fees, a ticket surcharge, business improvement district fees, or even the EB-5 green-cards-for-cash plan used by the New Jersey Nets for their new Brooklyn arena.
In short, this is a run-stuff-up-the-flagpole package, with lots of hand-waving and gaps to be filled in. (Best line from the Sacramento Bee's solid analysis of the plan: "The Think Big report also glides over the existing $67 million debt the team owes to the city, calling it a 'significant issue that must be addressed.'") And while it manages to cobble together enough money to pay for an arena, it leaves unclear whether either taxpayers or the Kings would get back enough revenue to make the whole thing worthwhile.
The Kings owners the Maloof brothers issued a statement calling the Nexus plan "a very positive step," but otherwise didn't comment on the specifics. The Sacramento city council is expected to begin debating on Tuesday whether to give the city the go-ahead to start negotiating with developers to turn this pencil sketch into an actual arena plan; even if that happens, though, the real battle could be over what to pick and choose from this menu of funding options, and whether a mix can be found that will please the Maloofs and an arena builder without soaking the public.
UPDATE: Commenters below note something that blew right past me: While it's implied that the dollar figures above are in present-day dollars — i.e., $100 million means enough future cash to pay off $100 million in construction bonds today — it never actually says whether it means present value or nominal future value over time or what. If it's the former, it's the right way to do it — except for the bit about not explaining what units you're using in a high-priced document that took months to produce.
Big shock the Maloofs didn't comment further. They're sitting back waiting for the arena plan to collapse and open Anaheim back up for them. I'm actually surprised they even commented at all.
Kings profitable? Yes there is a Santa Claus.
The Maloofs are dead broke and all the trashy housewives of Beverly Hills can't put Humpty Dumpty back together again...
Even with one of these godawful ugly extravaganza arenas, and Sac already has one, ARCO...who is going to pick up the bill for the NBA losers...and it comes to 10 to 20 million per YEAR for the Queens/Kings
What I don't get about this "plan" is how vague it is. They didn't devise a plan; they've created a list of possible funding ideas.
Did they really need 100 days to create a list of possible funding sources? What is on or off that list that wasn't on it 100, or even 200, days ago?
Privatizing parking; okay, there's that one. And I expect the Council to reject that one, since the City owns the mall 3 blocks from the proposed arena site, and it would harm that interest.
What else is there?
I've also been wondering if they've identified enough revenue. It doesn't look like they have to me. The report identifies somewhere between $275M-$400M in their "menu", and the building has an estimated cost of $387M. Presumably, someone will sell bonds to fund the construction, which means the bond-holders will expect to be paid interest. So how is $400M sufficient to repay a $387M bond issue? And that's given no cost-overruns and the Council going along with every item in this report -- it still doesn't seem like enough revenue.
Basically, the panel has given the Council a list of funding options they probably had 200 days ago, and is now giving them until Dec 31 to make a plan that can't pencil. Sounds like a waste of 200 (or, more optimistically, 100) days to me.
Am I completely missing something?
The Barrett Sports Group was paid $110,000 for this menu of funding options that isn't a funding plan at all. Nice work if you can get it.
It is so disingenuous and borderline fraudulent to use hard dollar amount ranges on the 1/3 distribution scenario to come up with the $387M required funding. This gives the impression that it can all be paid for upfront. That's not how it happens in real life. Those amounts would be received over some period of time, say 30 years, but the costs have to paid today. And, BTW, didn't the Maloofs say at one point they would be willing to pay $10M/yr for 30 years as a tenant. That amounts to $300M, not the maximum $150M stated in the Nexus report. The KJ team has conveniently excluded any debt service cost because they know the revenue options are insufficient to pay for it. So who will? Taxpayers who provide the security for the GO bonds.
The true construction cost of this boondoggle will be at least $600M with a $50M annual debt service/investor payment at $7.5% interest rate over a 25 year amortization. This highly unverifiable and uncertain "hodge podge" of revenue sources simply will not satisfy any investors/lenders. Even assuming $25M per year in total revenues leaves a large funding gap, which is unresolvable.
This scam and shameful propaganda machine needs to be buried once and for all. It's been nothing but a big waste of time for everyone and shows poor leadership and political skills on the part of our star mayor. Just watch as the gang of 70 start heading for the hills as this non-plan implodes.
They should charge the Kings $4 million or so in rent (approx $100k/game) and do a tax on hotels, rental cars and maybe landing fees for private planes. Sell it as a tax on lobbyists and tourists (yes, I know that's not what really happens) and see if that would cover the extra $14-16 million that's needed for debt service.
The great part there is that if the Kings balk then Sacto can plead to the NBA to block the move. I have a feeling other owners don't love the idea of the Maloofs getting Anaheim anyway.
You know, when I read the reports - and the report - I assumed that Barrett was talking about present value with those numbers: i.e., $94-123m means "enough future revenue to pay for $94-123m in stadium bonds." But I just dug through the report itself, and it never says whether it's present value revenue or nominal revenue over time or what. That's amazingly shoddy, even for the admittedly low standards of stadium feasibility studies.
Thanks, Mike and Cal, for calling my attention to this. I'll add an update to the original item.
Actually, Neil, this is conveniently hidden in a footnote. Look on pages 18 and 19 of the "plan."
"Does not include annual debt service."
That's a pretty freakin' huge point to hide in a footnote.
"Does not include annual debt service or capital replacement/reserves."
That's just fantastic stuff to hide in the footnotes, don't you think? It sure looks to me now that they plan to have this around 1/6 privately financed (those surcharges are public costs BECAUSE they'd be backed up by the general-fund).
Nah, that "Does not include annual debt service" is about the arena revenue chart, not the construction debt chart.
Well, where, then, is Debt Service listed as an expense in the Nexus report? I don't see it anywhere.
Someone's going to sell bonds, and someone's going to pay that interest. So... Who is it, and how much is it? We don't even get an estimate? That seems like a pretty big deal.
MikeM- I agree with you, the public needs to be provided with information about Debt Service. It is a 'pretty big deal' but one that elected officials seem to ignore.
Here in Santa Clara, there's a 2007 city agenda report document that says our Stadium Authority could be in for more than $200 million in interest payments on its $330 million contribution to the stadium, yet the debt service isn't talked about by our city council or the press.
When someone goes to buy a home, lenders must disclose all interest, fees, etc. as well as principal. I think that voters/taxpayers should be entitled to the same information from their public officials when public funds are used to subsidize a private business.